Central Electricity Regulatory Commission

Central Electricity Regulatory Commission (CERC), a key regulator of power sector in India, is a statutory body functioning with quasi-judicial status under sec – 76 of the Electricity Act 2003. CERC was initially constituted on 24 July 1998 under the Ministry of Power's Electricity Regulatory Commissions Act, 1998 for rationalization of electricity tariffs, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, and for matters connected Electricity Tariff regulation. CERC was instituted primarily to regulate the tariff of Power Generating companies owned or controlled by the government of India, and any other generating company which has a composite scheme for power generation and interstate transmission of energy, including tariffs of generating companies.

Central Electricity Regulatory Commission
केंद्रीय बिजली विनियामक आयोग
Agency overview
Formed24 July 1998
JurisdictionCentral government of India and Inter-State Transmission
HeadquartersNew Delhi
Agency executives
  • Mr. P. K. Pujari, Chairperson
  • Mr I. S. Jha, Member
  • Mr Arun Goyal, Member
Parent agencyMinistry of Power
Websitehttp://www.cercind.gov.in/

History

On 2 July 1998, recognizing the needs for reforms in the electricity sector nationwide, the Central government of India moved forward to enact the Electricity Regulatory Commission Act of 1998,[1] which mandated the creation of the Central Electricity Regulation Commission with the charge of setting the tariff of centrally owned or controlled generation companies. Ministry of Power, India, has published the Electricity Regulatory Commissions Act, 1998.[2] Apart from CERC, the act also introduced a provision for the states to create the State Electricity Regulation Commission (SERC) along with the power to set the tariffs without having to enact separate state laws.

Mr.S.L.Rao was the first Chairman of CERC (1998–2001).[3]

During March 2004, Indian Institute of Management – Ahmedabad (IIM-A) called for the merger of the Central Electricity Authority (CEA) and Central Electricity Regulatory Commission (CERC) on the grounds that technical and economic regulatory functions need to be carried out in close coordination.[4] Even though the Electricity Act (EA) 2003 envisages separate identity for CERC and CEA, and there is a necessity for separation in the short run, the two regulators should be merged eventually, as there are substantial synergies between them. But Ministry of Power rejected IIM-A's recommendations in this regard and observed that the tariff fixation is in the exclusive domain of electricity regulatory commissions (ERCs), and no other entity or government has any role in this regard.

On 1 September 2009, CERC has entered into an Memorandum of Understanding (MoU) with world-renowned USA's Federal Energy Regulatory Commission for Development and regulatory oversight of Power market, Grid Reliability, Energy Efficiency, Transmission and Distribution services in India.[5]

Obligations
  • Formulate an efficient tariff setting mechanism, which ensures speedy and time bound disposal of tariff petitions, promotes competition, economy, and efficiency in the pricing of bulk power and transmission services, and ensures minimal cost investments.
  • The regulation of tariffs of central generating stations.
  • The regulation of tariffs of electric power generated and sold across states in a composite package.
  • The regulation of interstate transmission tariffs, and facilitation of open access in interstate transmission.
  • To issue licences to persons to function as transmission licensees and electricity traders with respect to their interstate operations.
  • To adjudicate disputes involving generating companies or transmission licensees.
  • To Improve the operations and management of the regional transmission systems through Indian Electricity Grid Code (IEGC), Availability Based Tariff (ABT), etc.
  • To specify and enforce the standards with respect to quality, continuity, and reliability of service by licensees.
  • To promote the development of the power market & fix the trading margin in the interstate trading of electricity, if considered necessary.
  • To discharge such other functions as may be assigned under the Act.

Advisory functions
  • Formulation of National Electricity Policy and Tariff Policy.
  • Promotion of competition, efficiency, and economy in the activities of the electricity industry.
  • Promotion of investment in electricity industry.
  • Any other matter referred to the Central Commission by the Central Government.

Chairpersons
  • Prof. S. L. Rao (03.08.1988 to 21.01.2001)
  • Mr. A. K. Basu (04.04.2002 to 23.03.2007)
  • Dr Pramod Deo (09.06.2008 to 08.06.2013)
  • Mr. Gireesh B. Pradhan (22.10.2013 to 17.12.2017)
  • Mr. P. K Pujari (01.02.2018 to present)

Members
  • Mr. A. R. Ramanathan (August, 1988 to December, 2000)
  • Mr. D. P. Sinha ( August 1988 to November, 2002)
  • Mr. G. S. Rajamani (August, 1998 to July, 2003)
  • Mr. K. N. Sinha (May, 2001 to May, 2006)
  • Mr Bhanu Bhushan (February, 2004 - February, 2009)
  • Mr A. H. Jung (February, 2005 to February, 2007)
  • Mr. R. Krishnamoorthy (May, 2007 to January, 2010)
  • Mr. S. Jayaraman (September,2008 to May, 2013)
  • Mr. V. S. Verma (February, 2009 to February, 2014)
  • Mr. M. Deena Dayalan (March, 2010 to February, 2015)
  • Mr. A. K. Singhal (October, 2013 to October, 2018)
  • Mr. A. S. Bakshi (August, 2014 to July, 2018)
  • Dr. M. K Iyer (August, 2015 to February, 2020)
  • Mr. I. S. Jha (January, 2019 to present)
  • Mr. Arun Goyal (April, 2020 to present)

Important advice to government
  1. Regarding time frame for tariff based competitive bidding (01-06-2010)
  2. Regarding the Open Access (18-05-2010)
  3. Regarding the installation of dedicated transmission lines (14-05-2010)
  4. Regarding the issues related to regulation of electricity forward contracts and electricity derivatives markets (19-02-2010).[6]
  5. Regarding the matter of proposed amendment to Tariff Policy (14-1-2010)
  6. Regarding the modification in Standard Bidding Document for development of transmission lines through competitive bidding (13-1-2010)
  7. Regarding the issues relating to regulation of electricity forward contracts and electricity derivatives markets (18-11-2009)
  8. Regarding the guidelines and Standard Bidding Documents for tariff based competitive bidding for procuring transmission services (12-11-2009)
  9. Regarding ring-fencing of State Load Despatch Centers (11-08-2009).[7]
  10. Regarding the competitive procurement of transmission Services (06-05-2009)
  11. Regarding order of the various State Governments (27-04-2009)
  12. Regarding the rates of depreciation to be notified under the Companies Act. (20-04-2009)
  13. Regarding designating electricity trader by Central Government for import of electricity from other countries (13-04-2009)
  14. Regarding the order of the Karnataka under Section 11 of the electricity act, 2003(5-02-2009)
  15. Regarding the measures for restricting the pricing of electricity in short-term market (22-12-2008)[8]

Regulatory independence
Regulatory Independence
Selection ProcessSelection of Chairman/members by Government on advice of selection committee
Qualifying Criteria Prescribed
Disqualifying CriteriaPrescribed
Removal Criteria
& Procedure		Criteria Laid down. Removal with advice from Supreme Court of India
Tenure5 Years. Not eligible for re-appointment
Staff AppointmentCan appoint secretary and determine the number, nature and Categories of other staff but with government approval.
Staff SalaryStaff Salary can be determined with the approval of government by regulations
FinanceExpenses to be charged on Consolidated Fund of India[9]
Relationship
with government		Quasi-Judicial body, but subject to policy direction by government of India.

Evolution of Electricity Tariff & Role of CERC

Single part tariff

A system of single-part tariffs was in vogue in India for pricing of thermal power, prior to 1992. The single-part tariff for a station was calculated to cover both the fixed cost as well as the variable (energy) cost at a certain (normative) generation level.

Demerit:

  1. Energy production above the normative generation level yielded additional revenue. i.e., a surplus over the fixed and variable cost of the station.
  2. The incentive and disincentive for power generation got linearly linked to the annual Plant Load Factor (PLF) of the generating station.

Two part tariff for Generation as per K.P. Rao Committee (1992)

Finding that the single-part tariff, particularly for Central generating stations, was conducive neither to economic generation of power as per merit-order, nor to satisfactory operation of the regional grids, the government of India adopted in 1992 a two-part tariff formula for NTPC stations based on the recommendations of the KP Rao Committee.

Recognizing that there would be no motivation on the part of NTPC (Central generating stations) to maintain a high level of efficiency and availability if it was paid the full fixed cost irrespective of level of generation and variable cost for the quantum of energy actually generated, the K.P. Rao Committee had recommended a scheme of incentive/disincentive, as a variant of a simple two-part tariff. The scheme provided for linking of incentive and disincentive with Plant Load Factor (PLF) plus deemed generation, which in effect is Plant availability.[10]

Evolution of Availability Based Tariff (ABT)

The serious problems of regional grid operation however continued even after 1992. This was because the K.P. Rao Committee had been able to tackle only one end; the Central generation side. Overdrawals by some State Electricity Board's during peak-load hours and under-drawals during off-peak hours continued unabated, causing serious frequency excursions and peretual operational/commercial disputes.

In the year 1994, M/s ECC of USA were commissioned under a grant from Asian Development Bank to undertake a comprehensive study of the Indian power system and recommend a suitable tariff structure. ECC submitted their report in February, 1994, recommending Availability Tariff for generating stations, which was accepted in principle by GOI in November, 1994. A National Task Force (NTF) was constituted by the Ministry of Power in February, 1995 to oversee the implementation of ECC's recommendations. Based on NTF deliberations between 1995 and 1998, Ministry of Power had crystallized the formulation for the so-called Availability-based tariff (ABT).[11]

With the spirit of the Electricity Regulatory Commissions Act 1998 and consequent upon transfer of relevant powers vested under section 43 A (2) of the Electricity (Supply) Act 1948 to the CERC with effect from 15 May 1999, GOI forwarded the above draft ABT notification to CERC vide OM dated 31.5.1999 for finalization after due deliberation. The draft notification was then issued through a public notice and comments/objections were invited. The Commission in July 1999 held detailed hearings on the above. The ABT order dated 4 January 2000 of the Commission departs significantly from the draft notification as also from the prevailing tariff design

Standard Tariff Model

Tariff for supply of electricity shall comprise two parts:

  1. Fixed or Capacity Charges (For recovery of Annual Fixed Cost)
  2. Energy or Variable Charges (For recovery of Primary Fuel Cost wherever applicable)

The annual fixed cost (AFC) of a generating station or a transmission system shall consist of the following components[12]

  1. Return on equity (RoE);
  2. Interest on loan capital;
  3. Depreciation;
  4. Interest on Working capital;
  5. Operation and maintenance expenses;
  6. Cost of secondary fuel oil (for Coal-based & Lignite fired generating stations);
  7. Special allowance for renovation and modernisation or separate compensation allowance, wherever applicable.

The Energy charge shall cover the primary fuel cost and limestone consumption cost (where applicable), and shall be payable by every beneficiary for the total energy scheduled to be supplied to such beneficiary with fuel and limestone price adjustment

Relation with Other Power Sector Bodies (MoP,CEA, Appellate Tribunal)

Appellate Tribunal and CERC

Appellate Tribunal for Electricity has been established by Central Government for those who are not satisfied with the Central Electricity Regulatory Commission order or with a state.[13] The Tribunal has the authority to overrule or amend that order, just like the Income-Tax tribunal or the Central Administrative Tribunal. The tribunal has to be approached within 45 days of the aggrieved person from getting the order.

Central Electricity Authority (CEA) and CERC

Since 1 April 1999 CEA has entrusted CERC with the task of regulating power tariffs of central government power utilities, inter-state generating companies, inter-state transmission tariffs. Section −76 of Electricity Act, 2003 stipulates that CERC shall consist of a Chairperson and three other Members. And one of the CERC members (Ex-Officio) has to be Chairman of CEA.
In Indian Power Sector, CEA takes care of:

  1. Planning Regulation where power demand and supply gap has to be regulated.
  2. Construction regulation where Construction of thermal-, hydro-, gas-based power plants and power systems are regulated in the right manner.

Whereas CERC take care of third aspect of power sector regulation -

3.Tariff regulation, a purely economic exercise.

National electricity policy is normally formulated in consultation with and taking into account the views of the Central Electricity Regulatory Commission (CERC), Central Electricity Authority (CEA), and state governments.[14]

SERC and CERC

CERC and State Electricity Regulatory Commission (SERC) are the two electricity regulators – one operating at the central level and the other at various state levels. CERC's primary function was to regulate the tariffs of central generating stations as well as for all interstate generation, transmission and supply of power. Whereas SERC's primary function was to determine bulk and retail tariffs to be charged to customers, regulate the operations of intrastate transmission, including those of the State Load Despatch Center (SLDC). During Parliamentary Standing Committee on Energy in the year 2001,[15] SERC being established in states, for formulating standards relating to quality, continuity and reliability of service for the electricity industry have failed in their efforts. There was a proposal of having benches of the Central Electricity Regulatory Commission (CERC) in five to six locations instead of having a SERC in each state, but the Committee that has rejected the proposal stating it was not possible unless states were willing to accept such a proposal.

Ministry of Power and CERC

MoP entrusts CERC for providing escalation rate for coal and gas, inflation rate based on WPI and CPI, discount rate, and dollar-rupee exchange variation rate for the purpose tariff determination.[16]

Power Exchange Companies and CERC

Central Electricity Regulatory Commission (CERC) has issued the Power Market Regulations, 2010[17] which will govern transactions related to ‘'Energy trading'’ by companies like Indian Energy Exchange (IEX), Power Exchange India (PXI), National Power Exchange (NPX) in various contracts related to electricity. The regulations have been issued by the CERC in exercise of its powers under section 66 of the Electricity Act, 2003, which is aimed at taking measures conducive to development of the electricity industry, promoting competition therein, protecting interest of consumers and enhancing supply of electricity.

Important Regulations / Policy Framework

1999
  1. 26-04-99, Conduct of Business Regulation-1999 8/1/99-CERC dt.23-04-99 Notification
  2. 26-11-99, Conduct of Business Regulation-1999 8/1/99-CERC dt.24-11-99 Notification
2000
  1. 10-05-00, Conduct of Business Regulation (First Amendment) 8/1(1)/99-CERC dt 28-04-00 Notification
  2. 25-05-00, Filing of Annual Report by Thermal Generating Companies L-7/20(1)/99-CERC dt.28-04-00
  3. 15-07-00, Filing of Annual Report by Transmission Utility L-7/20(1)/99-CERC dt.10-07-00
2001
  1. 26-03-01, Terms and conditions of Tariff L-25(1)/2001-CERC dt.26-03-01
  2. 24-09-01, Terms and conditions of Tariff L-25(1)/2001-CERC dt.21-09-01
2002
  1. 11-07-02, Terms and Condition of tariff Regulation-First Amendment-2002
2003
  1. 02-06-03, Terms and Conditions of Tariff (Second Amendment) Regulation-2003
2004
  1. 29-03-04, CERC Notification - CERC (Terms and Conditions of Tariff) Regulations, 2004
  2. 09-09-04, CERC Notification - CERC (Terms and Conditions of Tariff) (First Amendment) Regulations, 2004
  3. 06-02-04, CERC Notification - CERC (Open Access in Inter-State Transmission) Regulations, 2004
2005
  1. 11-08-05, CERC Notification - CERC (Terms and Conditions of Tariff)(first Amendment) Regulations, 2005
  2. 17-11-05, ERC Medical Regulations – Nov 2005
  3. 23-02-05, CERC Notification - CERC (Open Access in inter-state Transmission)(First Amendment) Regulations, 2005
2006
  1. 01-06-06, CERC Notification - CERC (Terms and Conditions of Tariff)(First Amendment) Regulations, 2006
2007
  1. 13-03-07, CERC Notification - CERC (Terms & Conditions of Tariff)(Amendment) Regulations, 2007
2008
  1. 07-02-08, CERC Notification - CERC (Open Access in inter-State Transmission) Regulations, 2008
2009
  1. 28-05-09, CERC (Conduct of Business) (Amendment) Regulations, 2009
  2. 02-06-09, ERC (Procedure, Terms & Conditions for grant of Transmission Licence & other related matters) Regulations, 2009.
  3. 20-01-09, Terms and Conditions of Tariff, Regulations for 2009–14
  4. 10-08-09, CERC Grant of Connectivity, LTOA & MTOA in inter-State Transmission related matters, 2009
  5. 24-02-09, Procedure, Terms and Conditions for grant of trading licence and other related matters Regulations, 2009
  6. 26-09-09, Fees and charges of Regional Load Despatch Centre and other related matters Regulations, 2009
  7. 17-09-09, ERC Tariff Regulations for Renewable Energy Sources Regulations, 2009[18]
  8. 24-12-09, Measures to relieve congestion in real time operation Regulations, 2009
2010
  1. 26-05-10, Procedure, Terms & Conditions for grant of Transmission License & other related matters (Amendment) Regulations, 2010
  2. 07-06-10, Procedure, Terms & Conditions for grant of trading license and other related matters (First Amendment) Regulations, 2010.
  3. 28-04-10, Indian Electricity Grid Code Regulations, 2010
  4. 28-04-10, CERC Unscheduled Interchange charges and related matters (Amendment) Regulations, 2010
  5. 21-01-10, Fixation of Trading Margin Regulations, 2010
  6. 21-01-10, Power Market Regulations, 2010
  7. 16-04-10, Procedures for calculating the expected revenue from tariffs & charges Regulations, 2010
  8. 31-06-10, Grant of Regulatory Approval for execution of Inter-State Transmission Scheme to CTU Regulations, 2010
  9. 15-06-10, CERC (Sharing of Inter State Transmission Charges and Losses) Regulations, 2010.[19]

See also

References
  1. Indian Express (27 July 1998). "Power regulatory body formed to fix tariff". Retrieved 14 July 2010.
  2. Ministry of Power, Govt of India (2 July 1998). "Electricity Regulatory Commissions Act". Archived from the original on 19 June 2009. Retrieved 14 July 2010.
  3. Reliance Power. "First Chairman of CERC". Archived from the original on 4 September 2009. Retrieved 14 July 2010.
  4. Financial Express (5 March 2004). "MoU proposal for CERC and FERC". Retrieved 14 July 2010.
  5. Federal Energy Regulatory Commission (9 November 2009). "MoU Between CERC and FERC" (PDF). Archived from the original (PDF) on 6 June 2010. Retrieved 14 July 2010.
  6. Business Line (19 February 2010). "CERC asks Govt to clear turf with commodities market regulator". Retrieved 19 July 2010.
  7. "Power regulator seeks ring fencing of SLDC". The Financial Express. 14 August 2009. Retrieved 19 July 2010.
  8. Press Information Bureau, Govt of India (4 March 2010). "CERC'S Order regarding measures for restricting the prices of electricity in Short Term Market". Retrieved 18 December 2008.
  9. Press Information Bureau, Government of India. "Expenses of the Central Commission". Retrieved 14 July 2010.
  10. Frontline Magazine,the Hindu (20 January 2001). "Availability Based Tariff". Archived from the original on 29 March 2005. Retrieved 16 July 2010.
  11. Ministry of Power. "Availability Based Tariff". Archived from the original on 28 September 2010. Retrieved 16 July 2010.
  12. Rediff Business (29 March 2004). "CERC announces new tariff norms". Retrieved 14 July 2010.
  13. Ministry of Power, Government of India. "APTEL and its Relation with CERC & SERC". Archived from the original on 29 September 2010. Retrieved 15 July 2010.
  14. Ministry of Power, Government of India. "Formulation of National Electricity Policy". Archived from the original on 19 June 2009. Retrieved 15 July 2010.
  15. "Benches of CERC instead of having a SERC in each state". Business Standard. 19 June 2001. Retrieved 15 July 2010.
  16. Central Electricity Regulatory Commission (31 March 2010). "Notification of Annual Escalation Rates as per Ministry of Power (MOP) instruction" (PDF). Retrieved 15 July 2010.
  17. Central Electricity Regulatory Commission (20 January 2010). "CERC notifies Power Market Regulations" (PDF). Retrieved 15 July 2010.
  18. Press Information Bureau, Govt of India (17 September 2009). "CERC notifies tariff regulations for green power". Retrieved 15 July 2010.
  19. Business Standard (18 June 2010). "CERC unveils regulatory norms for inter-state transmission". Retrieved 15 July 2010.
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